Cathy Sloan's Blog

There is not much information for Buyers about short sales.  Please post comments regarding short sale purchase experiences so potential buyers will know what to expect and can determine if a short sale is for them.

SHORT SALE:  A home sale in which a seller negotiates with their lender or lenders to sell the home for less than is owed on the mortgage(s) as payment in full for the debt owed. 

According to REALTOR® Magazine “The short sale occurs when the net proceeds from the sale are not enough to cover the sellers’ mortgage obligation and closing costs, such as property taxes, transfer fees, and the real estate practitioner’s commission.  The seller is unwilling or unable to cover the difference”

Short sales are not for those who are impatient or do not have a flexible time schedule for the purchase.

Buyers must be organized

1. Make loan application and have pre-approval arranged prior to making the offer.
2. Cash Offer -  Provide proof of funds letter from your banking institution or Investment bank

Present a clean offer

1. The Bank or lender won’t approve the sale if it is too far below the market value of the house (don’t confuse with listed price)
2. Try to include a $1000 escrow deposit.  Some like to see 1%
3. Keep terms standard and simple.  Don’t ask seller to pay fees or expenses that are not customary seller fees or expenses.
4. Be prepared to buy the property “as is” no credits for repairs or fix-up.
5. Make the offer contingent on the outcome of an independent home inspection.
6. Submit a copy of your mortgage pre-approval or proof of funds with the offer.
7. Set limits.  Make the offer contingent upon approval of the short sale including a time limit for approving the agreement.
   

In most cases the seller has notified the loss mitigation department of their plans to short sell.  Many bank/lenders will not take any action or begin the process to approve the seller’s request to sell the property as a short sale until an offer to purchase is received. The bank/lender must review the seller's documentation to evaluate if the seller's  financial situation and hardship qualifies for partial debt forgiveness.

The bank/lender will do their own broker price opinion and /or appraisal before accepting or countering your offer.  Remember a bank may not accept a full-price offer because they have not offered the seller any guidance or assistance on pricing the home.

Be prepared to wait.  Although response times vary from lender to lender, it can take two weeks or as long as 60 days to receive an approval, response or counter to your offer from the lender.

If you think you might want to walk away from the purchase agreement if the process takes beyond a certain date, be sure you include a contingency upon approval of the short sale in your offer.  Also include a time limit for approving the agreement in your offer.   Remember, setting a limit will not speed up the response time from the bank.  Too short a time might cause the bank to ignore the offer.

If there are a first and second mortgage or a home equity line of credit more than one approval for a short sale may be required.   The presence of two lenders makes a short sale more complicated since it’s often the lender that holds the second mortgage that has to absorb most of the loss.

Don’t go it alone.  Consider using a Buyer’s Agent with short sale experience to represent you.  A short sale can be very complicated.  Remember the listing agent works for the seller. Less than half of the short sales eventually go through.  The rest fail because the bank is too slow, counters with a high price, or another buyer comes in during the 11th hour with a higher bid.

The bank usually accepts the offer, counters or responds verbally.  It’s not a “sure thing” until all parties have fully signed & initialed the written purchase & sale agreement with the changes made per the verbal agreement.  The bank can change their mind (and have in many cases) until all parties have signed and all parties have received the signed documents for the agreed upon price and terms.

Buyer's and agents: Please post your experiences with rejected or accepted short sale offers.  Others need to know what they can expect when trying to purchse a short sale.

Cathy Sloan, Realtor

RE/MAX Specialists